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Tuesday, 10 October 2017

Pennies are Better than Blue Chips for Trading?

I am not so much of a trader for 2 reasons.

1. I'm a lousy chart reader.
2. I'm investing for an income portfolio.

However when opportunity strikes I would enter some small positions here and there for hopefully, some quick bucks. The holding period for my trading positions usually range from 5 days to 6 months though I am often not nimble enough when the trend moves against me.

Anyway through my poor and amateurish trading eyes, I noticed that the price of blue chips usually move within a tight range and is usually more influenced by the big boys.

Sometimes the big boys choose to sell or buy a particular blue chip contrary to the news in the market.

Take for example CapitaLand. Despite a slew of positive news recently, its share price has been inching down last month (though thankfully it has recovered slightly since last week).

I took a look at the top institutional sells then and if I remember correctly CapitaLand was among the most heavily sold counter amongst the big boys.

On the other hand, price of pennies are more easily influenced by retail traders / speculators who are in turn, often influenced by market news.

Big boys usually shun the pennies since there is often not enough volume on the other side of their trades to effect their transactions anyway.

This means that the pennies have higher volatility and the share prices have potential for greater swings than that of blue chips. Profit-taking opportunities are higher too.

Having said that, I also noticed technical analysis is sometimes not applicable to pennies due to for example, fast price swing on piece of news before the charts can capture.

Of course this might be due to my own inadequacies in TA.

For pennies, the risks are higher. But the potential rewards are correspondingly higher too.

Last but not least, a gentle reminder which I always keeps in mind: Only buy what you can afford to lose.